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The week covered by the latest CFTC Commitment of Traders report showed only minor position adjustments were made by the non-commercial or speculative community through April 3. Given the dramatic subsequent price action, the report may not be particularly revealing. However, the positioning does suggest that many speculators were leaning the wrong way ahead of the FOMC minutes, rekindling of tensions in the euro zone, and the recovery of the yen.
Euro: The net short euro position fell to 79.5k contracts, the smallest such net position since late November 2011. The net short position reached a record of 171.3k contracts at the end of January. The reduction has come as both longs entered and shorts were cut. That is what happened in the latest reporting week. Long positions rose 5.8k contracts, while shorts wee trimmed by 3.8k contracts.
The euro ran out of steam in front of $1.34. The lower end of its recent trading range is in the $1.2970-$1.3000 band. Although the US employment data may get some chins wagging about QE3, surely one monthly jobs report is insufficient, when seasonal distortions seem to be evident and other jobs data, such as the weekly initial jobless claims, hours worked and hourly earnings suggest a still gradually improving labor market.

At the same time, the flare up of tension in the the euro zone, evident by the rise in Spanish and Italian yields, and the looming political risks, represented by the French elections (but also Greek elections and Italian municipal elections in the coming weeks) should weigh on the euro.
Yen: The net short yen futures position was trimmed to 65.1k contracts from 67.6k. Longs rose by 3.7k as some specs took advantage of the pullback in the yen to (re-) establish long positions. Short positions rose by 1.1k contracts as some trend followers jumped aboard. The subsequent rally in the yen in the second half of last week like forced out some weak shorts and may have encouraged the establishment of new longs.
Japan has reported a series of disappointing data and political pressure is mounting again on the BOJ to take more action. The yen weakened from mid-Feb after the BOJ surprised by expanding its asset purchases. The yen's weakness also took place as tensions in Europe ebbed. This time, if the BOJ does respond, it will not be a surprise and will take place amid increased tensions in Europe. The risk is that the yen's weakness is not repeated.
Sterling: The net short position was trimmed to 8.8k contracts from 11.1k. Longs rose by 2.7k and shorts rose by380 contracts. The PMI data for the UK is consistent with mild growth in Q1 after a contraction in Q4 11. This has also encouraged the idea that when the current gilt purchase plan is completed next month, the BOE, will join the Fed and ECB in a wait-and-see-mode. Key support for sterling is seen in the $1.5770-$1.5800 area
Swiss franc: The net short position was shaved to 14.7k from -15.1k contracts. Longs grew by 322 contracts and shorts were pared by almost 100 contracts. Late in the week, the market tested the Swiss National Bank's resolve to defend the euro/franc floor of 1.20. When the SNB showed its hand, there was market talk that speculator players (CTAs? Hedge funds?) joined the SNB on the euro bid/franc offer. The subsequent bounce in the euro seemed halfhearted, perhaps due to the lack of participation. This is a key battle in the coming days.
Canadian dollar: The net long position increased to 29.5k from 23.7k contracts. Longs rose by 3.9k contracts and the shorts were reduced by a little less than 2k contracts. Canada did report stronger than expected jobs data toward the end of last week, but in the spot market it remains in a narrow range, with the US dollar trading mostly between CAD0.9900 and CAD1.000. The outlook for North America is superior to Europe. In a firm US dollar environment the Canadian dollar typically does better on the crosses.
Australian dollar: The net long position fell to 49.3k contracts from 59.6k in the most recent week. Longs were reduced by 5.6k, roughly the same amount as the previous reporting week. However, more shorts were established (4.6k) after they were cut the prior week (19.8k). The Aussie longs are the smallest since mid-January. The recent string of poor data and the signals from the RBA have encouraged the market to expect a rate cut in May. China reports a slew of data in the week ahead and signs of a further slowing of the world's second largest economy may contribute to the weight on the Aussie emanating from domestic considerations. Also the recovery of the yen may weigh on the Australian dollar as well. Initial support now is seen near $1.02, but over the coming weeks, the risk is for a deeper setback and par ($1.00) is possible.
Mexican peso: The net long peso positions edged higher to 84.5k contracts from 82.8k in previous reporting week. Longs were shaved by about 150 contracts, while the shorts were pared by 1.8k contracts. The disappointing US jobs report weighed on the peso in thin trading ahead of the weekend and the dollar rose to its best level against the peso since the start of February. The risk is that some of the late longs were forced out on money management considerations. The next level of resistance for the US dollar is seen near MXN13.12. A successful breach of it could see a quick move toward MXN13.30. Data in the first half of the week ahead may be soft, especially consumer prices and auto production. Mexican data in the second half of the week, including fixed investment industrial production may be better. On balance, we prefer to take advantage of near-term weakness to pick up some cheaper pesos.